In early April 2021, the New York’s state senate passed a deal to raise the income taxes collected on those with annual earnings above $1 million. This higher tax rate will apply to all state residents making more than $1 million, while the city’s own local levies will result in New York being the highest tax locale in the country. These heavy penalties have forced some wealthy New Yorkers into looking for alternative residence, to escape losing more than half their paycheck. Insider reported that Microsoft, Citadel, Elliott Management, and Baker McKenzie were in the process of acquiring office spaces in South Florida. Subway has been reported to be shifting some business units to Miami, and David Tepper, the hedge fund billionaire, is reportedly buying a $73 million mansion in Palm Beach. Florida may be a good state to move to for a range of reasons.
Firstly, Florida is one of the US’ paradises given its year-round warm weather and beautiful beaches. This is something New York cannot offer. The warm weather and natural surroundings lead to a more active outdoor lifestyle making use of the beaches, parks, water sports, running or other sporting activities. The spike in population growth can also be attributed to Florida’s cultural scene. Palm Beach is known for its arts and philanthropy because of the Norton Art Museum, Society of The Four Arts, Kravis Center, as well as regular galas and events.
Florida’s Tax Incentives
New York’s business people will have to pay a top marginal income tax rate of almost 52%, which would be the highest personal income tax rate in the US. This could lead to some of the wealthiest New Yorkers, individuals whose annual earnings total at $1 million or more, having to part with more than half of their paychecks. This comes at a tough time, where New York City and the state is still recovering from the pandemic. The state also has to adapt to changes made by Trump’s 2017 signature tax-cut law which serves to eliminate personal deductions of state and local taxes on federal income taxes by wealthier residents of New York.
Because of the increase in tax rates for the mega-rich, Florida has become one of the most attractive alternatives to New York City. This is not a new phenomenon. In 2019, Florida had attracted over $17 billion more than it lost due to it being the recipient of a “wealth exodus” from many states. That year, New York had contributed roughly $8 billion to Florida’s income base. Florida offers a range of benefits regarding tax to its residents:
- No state and city personal income taxes
Florida residents don’t pay state income taxes because Florida gains its income sales tax and excise taxes. This is a breath of fresh air to New Yorkers, seeing that New York City adds roughly 13% to its residents’ tax bill for state and city taxes. New Yorkers who earn $1 million annually, that comes to $130,000 annually.
- No capital gains tax
Seeing that Florida has no income tax for state residents, this means that Florida has no capital gains tax for individuals. This would be a breath of fresh air for New Yorkers because New York City and the state tax capital gains at ordinary income rates, as do many other states. But New Yorkers who are interested in moving to Florida need to keep in mind that it is not a simple process. Due to the New York tax law, an individual who establishes a domicile outside of New York will still be deemed a “statutory resident” of New York if he or she (a) maintains a “permanent place of abode” in New York for substantially all of the taxable year and (b) spends more than 183 days in New York during the taxable year.
- No estate tax
Assets are only subject to the federal tax because Florida has no estate tax of its own. An estate tax, also known as the “death tax,” is a tax on property transferred from a deceased person to the heir/heirs. New York does this differently, where if a resident dies, the property located in New York City and state is subject to city and state estate taxes.
The bottom line
Many of New York’s rich will be evading the high tax rates by fleeing to Florida. Jimmy Patronis, Florida’s CFO, roughly 900 people moved to Florida daily and he said this was largely due to the New York “tax hell”. For businesses who would like to branch out and take advantage of the benefits of Florida, they may obtain a DBA in Florida. The Really Useful Information Company (TRUiC) is able to offer more information about this process and what entrepreneurs would need to do.